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BEFORE: LAMBERT AND MOORE, JUDGES; ISAAC, 1 SENIOR JUDGE. LAMBERT, JUDGE: Christopher Morgan and Sharon Takvam appeal from the Shelby Circuit Courts entry of summary judgment in favor of HSBC Bank USA,
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briefs, we reverse and remand for proceedings consistent with this opinion.
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Senior Judge Sheila R. Isaac sitting as Special Judge by assignment of the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes (KRS) 21.580.
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NA in a foreclosure action. After a careful review of the record and the parties
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APPEAL FROM SHELBY CIRCUIT COURT HONORABLE CHARLES R. HICKMAN, JUDGE ACTION NO. 08-CI-00512
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APPELLANTS
APPELLEE
On August 22, 2005, Morgan and Takvam executed a note in the amount of $101,200.00 to Ownit Mortgage Solutions, Inc. (Ownit). That same
property located at 12233 Mount Eden Road, Mount Eden, Kentucky 40046. After executing the note and mortgage, Morgan and Takvam defaulted on their payments and currently owe for their March 1, 2008, payment. At the time of this appeal,
they owed $101,066.87, plus interest at 9.875% per year from February 1, 2008, in addition to court costs, advances, and other charges, including a reasonable attorney fee, as allowed by law.
2005-5 (HSBC) instituted foreclosure proceedings by filing a complaint against Morgan and Takvam, based on their alleged default under the note and mortgage.
Takvams home, but stated that a copy of the note was unavailable at the time the complaint was filed. Rather than filing an answer, Morgan2 moved to dismiss the
failed to state a claim for which relief may be granted. The basis for Morgans
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We note that while Takvam was named on the Notice of Appeal, she does not appear to have actively participated at the trial court level below, and she has not filed a separate brief on appeal. Thus we refer only to Morgan throughout the opinion.
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complaint, arguing that HSBC did not have standing to sue and that the complaint
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In the complaint, HSBC claimed to be the holder of the note on Morgan and
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for Ownit Mortgage Loan Trust, Mortgage Loan Asset Backed Certificates, Series
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Systems, Inc., (MERS) as nominee for Ownit. The mortgage encumbered the
motion to dismiss was that HSBC did not attach a copy of the note to its complaint, and thus there was no proof that they had standing to enforce the note.
lender, and Morgan and Takvam, as borrowers. HSBC was not a party to this note. On August 11, 2008, an assignment of mortgage from Ownit to HSBC dated
August 4, 2008, was recorded in Shelby County, Kentucky. While Morgans motion to dismiss was still pending, HSBC filed for summary judgment on December 3, 2008. The copy of the note HSBC attached to the motion for
summary judgment included an undated Note Allonge signed by Richard Williams as Vice President of Litton Loan Servicing, LP and as Attorney in Fact of
On January 7, 2009, the trial court held a hearing on Morgans motion to dismiss and HSBCs motion for summary judgment. Subsequently, on February
judgment in HSBCs favor. Morgan filed a timely motion to vacate under Kentucky Rules of Civil Procedure (CR) 59.05 on March 6, 2009, and on March
docket sheet.
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this Court, sua sponte, raised the issue of jurisdiction and ordered Morgan to show why the appeal should not be dismissed as being interlocutory because no order -3-
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18, 2009, the trial court orally denied Morgans motion and noted the same on the
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25, 2009, the trial court denied Morgans motion to dismiss and entered summary
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and in its response attached a copy of an adjustable rate note between Ownit, as
appeared in the record denying Morgans CR 59.05 motion. After considering Morgans response, this Court entered another order on June 8, 2009, ordering that
automatically at the expiration of that thirty-day period per the Courts order, the
record did not reflect that the trial court ever entered an order denying the motion to vacate. On March 16, 2011, this court again held the matter in abeyance for
thirty days to permit the parties to petition the trial court to enter a proper order denying the CR 59.05 motion. On March 31, 2011, the parties tendered an order
active docket for consideration of the merits on appeal. On appeal, Morgan raises two arguments; namely, 1) that HSBC was
enforce the note and 2) that summary judgment was premature because discovery was incomplete and because he did not have time to conduct discovery to
Court set forth the standard of review in an appeal from the entry of a summary
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judgment:
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determine whether HSBC breached an assumed duty. In Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001), this
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not entitled to a judgment as a matter of law because it did not have authority to
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from the trial court denying the CR 59.05 motion, and this case was returned to our
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order in accordance with its March 18, 2009, docket sheet notation overruling
the appeal be held in abeyance for thirty days to allow the circuit court to enter an
as a matter of law based upon the argument that HSBC lacked standing to enforce the note. Initially, we note that the particular facts of this case, in particular the
it was the holder of the note on Morgans home but claimed that a copy of the note was unavailable. Morgan moved to dismiss on grounds that HSBC failed to
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produce the note and thus had no proof that, as the holder of the note, it was entitled to proceed in foreclosure against Morgan and Takvam. -5-
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sequence of events that unfolded, is troubling. In its complaint, HSBC alleged that
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The standard of review on appeal when a trial court grants a motion for summary judgment is whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law. The trial court must view the evidence in the light most favorable to the nonmoving party, and summary judgment should be granted only if it appears impossible that the nonmoving party will be able to produce evidence at trial warranting a judgment in his favor. The moving party bears the initial burden of showing that no genuine issue of material fact exists, and then the burden shifts to the party opposing summary judgment to present at least some affirmative evidence showing that there is a genuine issue of material fact for trial. The trial court must examine the evidence, not to decide any issue of fact, but to discover if a real issue exists. While the Court in Steelvest[, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991),] used the word impossible in describing the strict standard for summary judgment, the Supreme Court later stated that that word was used in a practical sense, not in an absolute sense. Because summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial courts decision and will review the issue de novo. [Citations in footnotes omitted.]
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KRS 355.1-201(2)(u) defines a holder as [t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that
of this argument, Morgan points out that the note was payable to a specific,
identified entity: Ownit. Morgan argues that Ownit could have transferred or
negotiated its rights to HSBC by endorsement, which requires a signature by an authorized representative of Ownit in the signators official capacity, see KRS 355.3-402, but that it failed to properly do so.
Initially, HSBC produced a note between Ownit, Morgan, and Takvam, and subsequently, at summary judgment stage, produced another note
order granting summary judgment, the trial court held that the endorsement in the note allonge by Richard Williams, as president of Litton Loan Servicing LP and
note. In support of this holding, the trial court explained that as an attorney- infact for Ownit, Williams was authorized to transact business for Ownit. However,
attached and that later, this undated note allonge purporting to indorse the note to HSBC appeared in the record.
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to enforce the note. That statute states that [t]he transfer of an instrument, -6-
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we find it troubling that when HSBC initially filed suit, a copy of this note was not
Further, HSBC argues that under KRS 355.3-203(2), it has the power
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attorney- in- fact for Ownit, was sufficient proof that HSBC was a holder of the
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with the aforementioned note allonge purporting to assign the note to HSBC. In its
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was not a holder of the note and accordingly could not enforce the note. In support
is the person in possession. Morgan argues that at the time it filed suit, HSBC
whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument. The Official comment to Section 203(2)
Thus, according to HSBC, even if Ownit did not properly indorse the note, as Morgan claims on appeal, it can enforce the note if Ownit was a holder at the time of the transfer, or at the time the note allonge was signed. The difficulty in determining the applicability of the note allonge is the fact that it is not dated,
and thus there is nothing in the record to determine whether the transferor, Ownit, was a holder at the time it allegedly transferred its interest in the note to HSBC.
assigned to HSBC until August 4, 2008, and was subsequently recorded on August 11, 2008. HSBC filed suit on July 31, 2008, and the parties were served on August
and the mortgage when it filed suit, and thus had no standing, it cannot cure its lack of standing by subsequently acquiring an interest in the mortgage.
Morgan cites to Wells Fargo Bank, N.A. v. Marchione, 887 N.Y.S.2d 615 (N.Y.A.D. 2 Dept. 2009), in support of this argument. In that case, the parties
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executed a mortgage with Option One Mortgage Corporation on September 2, 2005. Id. at 616. The parties allegedly failed to make payments beginning on -7-
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2, 2008. Morgan argues that because HSBC did not have possession of the note
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This case is further complicated by the fact that the mortgage was not
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states: If the transferee is not a holder because the transferor did not indorse; the
April 1, 2007, and Wells Fargo initiated suit by filing a summons and complaint on November 30, 2007. Id. Option One assigned its right, title and interest in the
October 28, 2007. Id. The Appellate Court held that because Wells Fargo did not have an interest in the note and mortgage before they filed suit and only acquired such an interest after filing suit, the bank lacked standing to bring the suit. Id. at 617. Specifically, the trial court held, [i]n order to commence a foreclosure
action, the plaintiff must have a legal or equitable interest in the mortgage. . . .
Here, Wells Fargo lacked standing to bring this foreclosure action because it was not the assignee of the mortgage on November 30, 2007, the day the action was
when suit is filed. See Wells Fargo Bank, N.A. v. Byrd, 897 N.E.2d 722 (Ohio App. 1 Dist. 2008) (bank that was not the mortgagee when suit was filed cannot
Because it is impossible to determine from the record when Ownit transferred its interest in the note to HSBC and because the mortgage was not
simply cannot say that HSBC had standing to bring the instant action. CR 17.01 provides that every action shall be prosecuted in the name of the real party in
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interest, butan assignee for the benefit of creditorsmay bring an action It follows that, where a cause of action has been assigned, the assignee becomes the -8-
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assigned to HSBC until August 4, 2008, after HSBC filed suit against Morgan, we
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commenced. Id. Ohio also requires that banks have an interest in the mortgage
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2007. Id. The assignment contained a provision stating that it became effective on
real party in interest. See CR 17.01. However, [i]n no event may an assignee maintain an action for any part of a claim which has not been assigned to him.
Plaza B.V. v. Stephens, 913 S.W2d 319, 322 (Ky. 1996) (quoting Ashland v.
Ashland F.O.P. No.3, Inc., 888 S.W.2d 667 (Ky. 1994)). In the instant case,
HSBC cannot prove when it obtained a present or substantial interest in the note and it did not receive an interest in the mortgage until after it filed suit.
Accordingly, the trial courts judgment as a matter of law that HSBC had standing to pursue its claims was in error.
this opinion.
OPINION.
Respectfully, I concur with the result that HSBC Bank did not establish that
bankruptcy action, I agree with the analysis and detailed explanation set forth in In re Veal, ---B.R. ---, 2011 WL 2304200 (9th Cir. BAP, June 20, 2011) and find it to
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be persuasive and an excellent explanation relevant to the issue presently before the Court. -9-
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it had standing to file a complaint at the time it commenced this action. Although a
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summary judgment and remand this matter for further proceedings consistent with
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Works v. Winkle, 234 S.W.2d 312, 315 (Ky. App. 1950). A mere expectancy is not
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